Subprime Borrower Bailout Proposed

Legislation unveiled to cut foreclosures

THE ASSOCIATED PRESS

New Jersey lawmakers are moving to cut mortgage foreclosures by imposing a six-month moratorium on subprime loan defaults, creating a new loan fund to help people stay in their homes and allowing some who lose homes to stay in them for a time.

The legislation unveiled Tuesday is meant to help homeowners combat problems with subprime loans typically given to those with imperfect credit histories and low incomes.

For many with subprime loans, low-interest rates have adjusted higher, creating problems with paying mortgages.

Sen. Ronald Rice estimates as many as 16,500 New Jersey homeowners with subprime loans will face foreclosure this year.

"Too many families are losing their homes," said Rice, D-Essex.

Rice is sponsoring the legislation with Assembly Majority Leader Bonnie Watson Coleman, D-Mercer, who said government must get involved "so the cherished value of home ownership in this country does not devolve into a nightmare of bad credit and bankruptcy for borrowers."

The plan calls for:

A six-month moratorium on subprime loan defaults to give borrowers time to find a solution.

A new fund to provide loans and counseling to help people with subprime loans stay in their homes. The fund would be generated by a $2,000 fee charged to lenders for each subprime foreclosure and $1 million from the New Jersey Housing & Mortgage Finance Agency.

Allowing those who lose their homes to subprime foreclosure to stay in them as rent-paying tenants until the property is acquired by someone who plans to occupy it.

Watchdog group New Jersey Citizen Action estimates one in five New Jersey subprime loans could default by the end of 2009.

"It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house," said Phyllis Salowe-Kaye, New Jersey Citizen Action executive director. "But it is possible to purchase a mortgage with a one-in-five chance of putting a family out of their house and into the street."